Section 1035 Exchanges

Question 1

Section 1035 Exchanges

Answer 1

Internal Revenue Code Section 1035 allows for the exchange of an existing insurance policy or contract for another without incurring any tax liability on the interest and/or investment gains in the current contract

These tax-free exchanges, known as 1035 exchanges, can be useful if another insurance policy has features and benefits that are preferred or are superior to those found in an existing contract.

Policyowners must be aware that surrender charges might still apply on the existing contract, and a new surrender charge period may start after the exchange on the newly acquired policy.

Types of exchanges the IRS will allow on a tax-free basis are from:
Life insurance to life insurance
Life insurance to an annuity
Annuity to an annuity
Life insurance or annuity to long-term care

But NEVER an annuity to life insurance